Urgent- reversal service tax for work order service ????????

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 December 2012 Dear Experts,
we have issued one work order of Rs.20 Lacs.30% of above contract value is installation part and service tax is applicable on installation part.

contractor has submitted the bill, which is for supply not for installation.

now question is under one contract for work order service, what is the applicability of reverse Service charges in this scenarion. is reverse service tax is also applicable on supply bill and if it is part of the work order for work order service.

Thanks & Regards,
Ravinder

CA bhargava

CA bhargava (Expert)
Follow

08 December 2012 If the bill doesnt have any service part., then 40% of the bill will be considered as the Service part., and u will be liable to pay 50% of the service tax payable on the reverse charge mechanism.
in this case u will be liable to pay 2.472% as service tax on the total bil..

Querist : Anonymous

Querist : Anonymous (Querist)

08 December 2012 Dear Mr. Bhargava,
what happens, if contractor is submitting supply bill after charging vat then still reverse service tax will be applicable or it will be applicable when contractor will submit the installation bill.

Regards,
Ravinder

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

02 August 2025 Here’s a clear explanation for your **urgent query on reversal of service tax under reverse charge on work order service** involving supply and installation:

---

### Situation Recap:

* Total contract value: Rs. 20 Lacs
* 30% (Rs. 6 Lacs) is for installation (service part, taxable under service tax)
* Contractor submitted a bill only for **supply**, no installation billed yet
* Supply portion is subject to VAT, not service tax
* Question: Is reverse charge service tax applicable on the supply bill since it is part of the same contract? Or only on installation part?

---

### Applicable Law and Interpretation:

1. **Work Contract Service Tax:**

* Under Service Tax law (pre-GST), work contract services are considered a composite supply of goods and services.
* Service tax is charged only on the **service portion** (installation, labor, etc.) of the work contract.
* Typically, the service portion is taken as 40% of the gross amount (if not specified) as per CBEC guidelines.

2. **Reverse Charge Mechanism (RCM):**

* If you are the recipient of work contract service (like installation), you are liable to pay service tax under RCM on the service portion.
* The supply of goods alone is **not subject to service tax**, only VAT applies on goods.

3. **Supply Bill vs Installation Bill:**

* If contractor raises bill only for **supply of goods**, service tax (including reverse charge) is **not applicable** on this supply bill.
* When installation service is billed, **then reverse charge will apply on installation portion only**.

4. **If supply and service are billed separately:**

* VAT is applicable on supply invoices.
* Service tax under reverse charge applies only on installation/service invoices.

5. **If combined in one bill without breakup:**

* Service tax department may treat 40% of the gross bill amount as service portion, and reverse charge applies on that portion.

---

### Answer to your question:

* Since the contractor submitted a **supply bill with VAT**, and no installation/service billed yet, **reverse charge service tax is NOT applicable on the supply bill**.
* Reverse charge service tax will be applicable only when the contractor submits the installation (service) bill.
* You should keep clear documentation distinguishing supply and service components.

---

If you want, I can help you draft a communication or internal note for your accounting team on this. Would you like that?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now